Fast Five from the Valley: Edition 28
Artificial Intelligence is being taken to the next level as Standard & Poor’s buys Kensho for more than half a billion dollars
“All In” on AI – We have often written about AI becoming the new lifeblood of revenue for firms – however, the news out this week really brought this to life. S&P made the largest AI deal in history, acquiring Kensho for $550m. The deal is larger than what Google reportedly paid for DeepMind Technologies and Intel’s acquisition of Nervana Systems. Kensho is known for its ability to conduct complex financial analysis for investment banks, traders, and other financial institutions. The underlying technology enables users to be able to receive answers to more than 65m question combinations (e.g. What is the impact of Trump’s decision to implement tariffs on steel and aluminum imports) and was custom built alongside Goldman Sachs to become the “Google Style Search for Stock picking” when it was enhanced with AI. Kensho is expected to continue as its own unit, but clearly will be contributing to the S&P rating processes and alike. Additionally, Kensho will receive access to S&P customer base and also get access to the S&P dataset to parse over.
However, finance wasn’t the only industry which humans were intelligently thinking about AI this week – McDonald’s is focused on speeding up the delivery of its automation initiatives, focused on AI, Machine Learning and Cloud Computing to improve the “internal customer experience” i.e. productivity of its workforce, in addition to its external customer experience, through AI investments like in Astound’s AI enabled ticket routing. Increasingly, AI is focused on back-office with UiPath raising $153m (valuing the company at $1.1bn) to develop its robots which are focused on freeing up employee time from mundane activities such as invoice assessments. Additionally, while a lot of media attention is focused on self-driving cars, the lucrative self-driving truck market is getting significant attention from Uber as it uses autonomous trucks for its long-haul Uber Freight journeys in Arizona.
While an AI race between companies is likely to be beneficial to the customer, it is concerning to see what may be the beginning of an “AI arms race” between US and China. China has publicly stated its ambition to be the dominant player in all aspects of AI, military and otherwise, by 2030. Meanwhile, the Pentagon has spent $7.4bn in its unclassified budget in 2017 on AI and has already deployed AI into military hardware e.g. the F35. Naturally, this leads us to try to understand why the same motivation is not being applied to humanitarian causes like ending homelessness. A program called PATH in LA has now begun applying predictive analytics to determine a person’s vulnerability based a highly technical tool which gathers data on the person’s physical and mental health, along with other factors such as time on the streets. This enables the housing to be prioritized for those most in need.
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The number of malicious bots is on the rise, but they are not the only things that are influencing Silicon Valley’s Startup culture
The bots are coming – and not the good ones. Fake social media accounts. Fake online poll-takers. Fake news. Fake ticket buyers.
Traditionally, malevolent bots have been perceived as an IT problem, responsible for unauthorized vulnerability scans, spam, click fraud, and account hijacking etc. More recently social media companies have been using bots to effectively curated content on social media platforms, as a means to regulate their user base. However the bad bots are back – the use of bots to manipulate elections and community perceptions via key social media platforms is a new and frightening trend. Bots are much more prevalent than most people realize, with studies showing that almost 15% and 2% of Twitter and Facebook accounts respectively are run by bots / fake accounts. Additionally, the number of monthly active users is a key measure of the performance of any social media platform, with bots making these figures less accurate. It is clear that these bots are a serious threat to its distribution of disinformation but it is not clear whether intelligent bots can be developed to effectively counter this threat. The need to control these malevolent bots is critical to enabling Silicon Valley’s innovations to positively contribute to society.
The spread of fake news hasn’t been which is threated the Valley’s image as being a centre of positive innovation, with a growth in the numbers of tech leaders and venture capitalists (eg. Jim Clark [Netscape], Patrick McKenna [High Ridge Venture Partners]) entertaining the idea of leaving Silicon Valley. Some are unhappy with the extremely high cost of living and congestion in San Francisco, while others are citing the city’s progressive culture as “toxic”, voicing their concerns that the Valley has become slow and the drive to deliver financials has driven it away from its core values. Big tech companies including Google and Facebook have recently opened offices in cities including Boulder and Boston, while others have expanded their presence, locating themselves near research universities in cities such as Pittsburgh and Ann Arbor. No surprises there, as engineers outside of the Valley can cost up to 4x less than an engineer hired in the Valley.
With the incoming war against bad bots, the last thing we need is the shifting in technology talent outside of the Valley. Could this be marking the beginning of the end of the Silicon Valley? We think unlikely but it is likely that there will be a dispersion of innovation throughout the US and the globe.
Facebook is removing its separate news feed and adds Messenger Broadcast
Do you remember Facebook’s two feeds, your regular News Feed (for content from your friends and family), and the “Explore” feed (for publisher content)? Or perhaps you don’t: Taking on customer survey feedback, the social media giant has decided that it will be ending the test of this feature, as these two separate feeds did not actually help people connect with more friends and family. Facebook also admitted that the company should have been more transparent and up-front with the testing of its products, as the release of this new feature took publishers by surprise and made it harder for users to access important information.
Hopefully, Facebook applies these learnings to its new Messenger Broadcast rollout. Messenger Broadcast is a self-serve mass-messaging interface that allows businesses to send marketing messages to users. Despite its caution to-date, to avoid it hampering the company’s user growth, this may signal that the social media giant is preparing to monetize its Messenger application. However, with Facebook’s acquisition of WhatsApp, the organization may finally feel that Messenger is where it can start bringing in the cash.
States switch out of neutral when it comes to net neutrality.
While the FCC is in the process of removing net neutrality rules, Washington has become the first state to sign into law net neutrality legislation. However, while Washington may be the first state that crossed the finish line, lawmakers in 25 states have introduced net neutrality legislation – with the likely end game that each state will end up with its own version of net neutrality. However, this doesn’t deal with how the remaining 4bn people on earth who don’t have access to the internet will get access it (let alone “neutral access”). Enter Astranis, a startup which has just received $13.5m in backing from Andreessen Horowitz to build small (and hence cheaper to launch) satellites – beginning the space race for establishing satellite internet access for remote populations (and the discussions about satellite net neutrality).
Back on Earth, the latest US telco subscriber ratings were released (T-mobile winning the bronze medal for the number of subscribers and the silver for the 2nd highest subscriber growth) and the MWC identified some of the first industries to be impacted by the 5G rollout are retail, manufacturing, precision engineering, also in health. However, in order to fully capitalize on the digital age, it is important that you have the right building blocks for digital success. That might not have been the case for Lego, which just released its earnings announcement of a decline in revenue and profit for the first time in 13 years. Naturally, the issue is the mixed success that Lego has had with its digital endeavors coupled with the issue that children have left physical toys for screens.
P.S. It will be interesting to see how long the net neutrality debate lasts, as recent research from Facebook shows that people’s attention span has dropped from 12 secs in 2000 to 2.8 seconds for Gen Z (for comparison, a goldfishes’ attention span is still 9 secs).
Netflix slowly kills Hollywood and takes home its first Oscar
The secret winner of this year’s Academy Awards is Netflix. The former DVD rental company, which has evolved into an internet video content streaming giant, has taken home its first Oscar for the documentary “Icarus”. Netflix’s success last year has also earned its founder Reed Hastings a spot on the list of the world’s richest 500 people for the first time, with his net worth estimated at $4.1 billion. Netflix is spending billions of dollars to launch new shows. The company has had significantly more hits than misses and is about to hit the 120m worldwide subscriber mark soon. In North America, Netflix’s home market, the company accounts for more than one-third of the overall fixed network internet traffic.
Traditionally, the Oscars also have an influence on the financial success of major movie producers like Fox, Disney, Time Warner, and Universal. However, surprisingly this time, movie producer shares lagged the broader market’s gains and most gained less than 1% Monday, while the Dow Jones rose by nearly 1.5%. However, Netflix’s stock surged nearly 5% on Monday and another 2% Tuesday to an all-time high.
Even though the traditional movie producing studios each took home multiple Oscars, they did not get the same “Oscar’s bump” as Netflix. Netflix’s stock has had an impressive run and currently trades at around $317 per share and its run may not be over yet either.
However, Netflix certainly faces tough competition from Amazon, Apple, the Big Media-backed Hulu and Disney – which is about to create its own movie streaming service. Additionally, even though cannibalization effects are hard to be isolated and cannot be directly measured, streaming services are considered a big threat to the traditional movie industry and its big studios. For the time being, Hollywood continues to churn out movies relying on the old-fashioned theatrical distribution model. However, as streaming becomes the primary method to watch everything and the streaming services further increase their own content, we are interested to see how long the traditional studio model lasts.